Beyond cost savings: Maximizing IT spend for better business value

Sandeep Bhargava, Managing Director of Asia Pacific Japan (APJ), Rackspace Technology, explains why it is important for companies to build a cost governance framework, especially is light of the COVID-19 pandemic.

Cost reduction across all aspects of business is top of the mind in today’s economic climate, with businesses in Singapore reeling from the impact of the COVID-19 crisis. To help keep businesses viable while minimizing job loss, the Ministry of Manpower recently released cost saving measures and guidelines offering alternatives to retrenchment.

Other than managing workforce costs, business and technology, leaders are looking for other methods of reducing expenses such as downsizing office space, reducing office consumables and outsourcing some of the back end processes to shared services and help desks.

Why build a cost governance framework?

While these steps help in maximizing resources, short-term cost reduction is just part of the equation. For more significant cost savings and lasting cost control, companies need to examine how their whole organization consumes its resources. This is where cost governance comes in. Cost governance aims to develop a business-focused and sustainable program for cost-reduction and managing spending.

With the recent disruptions, businesses are becoming more receptive to cloud technologies. Thus, spending on multi-cloud and hybrid cloud solutions is expected to increase going forward. Many are asking themselves: How can my organizations tackle cloud costs for the long haul? How can we ensure the business is extracting the best value from our cloud investments?

Here are a few tips to consider when building a cloud investment cost governance framework:

1. Establish a cross-functional cost governance board
   A team should be comprised of members from various parts of the business including finance, IT operations, security and compliance. Application owners should be assigned and a C-level leader should be appointed as the executive sponsor to hold the team accountable to the cloud budget goals and help clear potential roadblocks.
2. Meet frequently
   The cost governance board should meet weekly, at first, to generate momentum. Virtual meetings are acceptable, of course, as long as there is a clear agenda and a good attendance is maintained. The cadence can be changed to twice-a-month or monthly once the team is established.
3. Define spend targets for the cloud
   The cost governance board’s finance representative can set expectations around budgets and define key metrics for cost savings goals. They can also address issues like contract terms and how much the business can invest upfront to reduce operational expenditures. The board should be able to set realistic budgets for the next financial reporting period. To keep the company’s cost saving efforts intact, the team should also try to avoid vendor lock-ins.
4. Review wasteful spending and execute quick wins
   The first starting point around cost savings should be looking at quick wins such as eliminating unused, over allocated or misconfigured resources. Engaging with experienced cloud operators can rapidly accelerate this phase. A careful evaluation of the organization’s application architectures can establish and help accelerate long-term cost optimization projects.
5. Introduce processes and policies to prevent runaway costs
   Once the initial cost savings measures have been implemented, the next step is to create enforcement policies around cloud cost, usage, security and governance. With third-party tools, IT teams can easily stay on top of these policies and be alerted to any violations.

The value of strategic cloud and IT investments

Inventory of resources, detailed billing reports, cost tagging and budget threshold status reports are key pieces of information that can help business leaders make decisions and strategic IT investments. To ensure that the right information and controls are available to the right people in the organization, processes should be defined and implemented. A cost governance framework can glue all the pieces together and provide a full picture of what a profitable IT investment should look like.

There is no question that the COVID-19 crisis has substantially impacted business performance, requiring the swift implementation of measures to respond to business needs. The crisis highlighted the need to establish strategic cost transformation plans, not only to mitigate the impact of the pandemic in the short-term but more importantly, to recover and be ready for the next wave of disruptions in the future.